Tata Consultancy Services Ltd. maybe basking in the afterglow of joining the $100-billion club, but it is the company’s rival Infosys Ltd. that is a preferred buy for analysts. Of the 44 analysts covering both companies, 38 have a buy or equivalent rating on Infosys, India’s original poster child for software development. This compares with 19 buys for TCS, Asia’s largest software exporter, according to data compiled by Bloomberg.
“We find the relative valuation attractive given the similar EPS growth — 11 percent CAGR, same as TCS,” Pankaj Kapoor and Akash Verma, analysts at JM Financial Research wrote in a note on April 23, referring to Infosys that has a market value of $38 billion.
Tata Consultancy Services’ shares have jumped over 25 percent this year, more than double the gain in Infosys. Jefferies in a post-earnings note said that the improved outlook for TCS has been factored into the share price, while Kotak Securities deemed the stock to be rich, noting its price-earnings multiple of 19 for fiscal 2020 earnings.
Not surprisingly, Infosys’ shares have a consensus rating of 4.2 on a Bloomberg scale, where 5 is an unanimous buy. TCS has a score of 3.4. Infosys Chief Executive Officer Salil Parekh said last week it was time to sacrifice profit margins by investing in advanced technology and skills in order to capture the opportunities of the ahead. That includes pumping more money into technologies such as the Internet of Things, retraining staff and localizing its workforce in the U.S. What matters most is execution, analysts said.
“Implementation and execution could be a long cycle, but expectations are low and the valuation is relatively attractive,” Parag Gupta and Gaurav Rateria, analysts at Morgan Stanley wrote in a note. The brokerage has an overweight recommendation on the stock.